Friday, February 24, 2012

“Burma burn-out”: The crisis in Administrative Capacity

Prof; Hla Myint paper 11 Feb 12 atUMFCCI

by Phyu Win Ei on Friday, February 24, 2012 at 11:41pm ·

Among the papers U Myint sent to me concerning this Seminar, there was a newspaper article reporting opinions of foreign diplomats, businessman and aid workers about Myanmar’s rapid reform programme currently taking place by Gwen Robinson with the Headline: Rush to reform Myanmar Creates ‘Burma burn-out’. All the opinions of different foreign observers converge on a common viewpoint, which may be summarized as follows:

  1.         I.      There are very few competent and well-trained civil servants to implement the various reforms programmes, which the country is undertaking.

  1.       II.      Despite this very limited administrative capacity, the country is trying to make enormous changes on all fronts. These would include economic reforms, ranging from land reforms, reforms in financial regulation and foreign exchange system and negotiations with various foreign organizations, government and non-government and with business people about existing or potential projects. All this, not to speak of the negotiations with the various ethnic minority groups.

  1.    III.      This leads to Myanmar’s bureaucrats having to work seven days a week, sometimes at odd hours day and night at “Government meetings take place even at midnight. Announcements can emerge at dawn. Thus, as the European Union’s ambassador to Myanmar said: “There is indeed a danger that people will burn-out. That’s why they need help”

  1.    IV.      This opinion is shared by many other diplomats who warn that the hectic pace of reforms would result in flawed policies, regulations riddled with loop-holes and ad hoc decisions.

I accept the argument that at present, the administrative capability backed by well-trained civil servants is very scarce resource in Myanmar and that the recent explosion of reforms may be stretching the government’s limited capabilities almost to a breaking point; and that this may result in flawed policies and less than the hundred percent efficiency in implementing the policies which the foreign observers expect from the overworked Burmese Civil servants.

But what can the government do faced with the two alternatives?

(1)  It can adopt a bold approach of pressing ahead with an undiminished pace of reforms, taking the risk of the burn-out of its civil servants with hastily drawn up policies with a poor capacity to implement them. If the hasty reforms programmes fail badly in achieving its promised goals, the reformers could be discredited, bringing back the reactionary hard-liners.

(2)  If on the other hand the government take a conservative approach of slowing down the reform to match its very limited administrative to implement them. Than many promising lines of reform would remain uncompleted.

Given the short time in which the reforms have started, the basic economic structure, including its administrative capacity would have hardly changed. With the loss of momentum of the reform process, there is the danger of the country relapsing into its previous state of inertia and economic stagnation.

I do not know which of these two options is riskier for the reformers: the bold approach resulting in hastily drawn-up policies inefficiently implemented or the conservative approach which is too slow to meet the rising expectations of the country which could also bring discredit to the reformers.

Faced with the two imponderable outcomes, I shall proceed on the assumption that the political risks, which the reformers face from choosing to take either one or the other of these alternatives are roughly equal.

The argument for slowing down the pace of reform programmes is based on two assumptions: (i) the scarce resource in the form of the limited administrative capacity is given and fixed; and (ii) that the country should allocate these given resources among competing uses according to its priorities instead of trying to do everything at once stretching its limited administrative capacity beyond it’s breaking point.

This sounds sensible enough in theory, but when applied to the actual situation in Myanmar, the underlying assumptions need to be altered.

(1)  The scarce resource in the form of the limited administrative capacity need not be assumed to be strictly fixed and given; there may be possibilities of augmenting this meager domestic supply from external sources. Later on, I shall be touching on the various sources of technical aid open to Myanmar to help her to augment her to increase the administrative capacity.

(2)  Economic textbooks usually formulate the economic problem in terms allocating the given means among competing ends on the basis of a clearly defined priority among these different ends. In the current situation in which Myanmar finds herself, it is hard to say which is more urgent, the goal of promoting economic development to relieve the poverty of the people or the goal of reconciliation with the various ethnic minorities to achieve political integration and stability. Furthermore, these two goals are not competing ends but are complementary with each other. Economic development would reduce ethnic tensions and bring in the people in the ethnic areas into an integrated network of economic interrelations. On the other hand, the improvement in the maintenance of law and order and political stability would serve to promote economic development. The need to promote economic development and the need to promote political integration are equally urgent and will have to be pursued simultaneously. Even in the narrower field of economics, the various reforms needed to promote economic development are complementary in the sense that they are likely to be more effective if put into motion simultaneously rather than introduced in a piece-meal fashion. For instance, an effective policy of expanding rice exports would require a complementary package of reforms, consisting of agricultural reforms to increase the output capacity of rice, market reforms to given incentives to the farmers to take full advantage of this increased capacity to produce rice, the review of the existing system of licensing of rice exports with aim to control the rise in cost of living and explore of achieving this aim in other ways, such as controlling the rate of inflation by fiscal and monetary policies and the reform of the present multiple exchange rate system. Slowing down the pace of reforms would mean leaving some part of this complementary package of reforms unfinished, undermining the effectiveness of the other reform programmes.

There is a further important point to take into account when we try to judge the appropriate pace of reforms in an underdeveloped country: that is, to take into account, not only the general pace of reforms but also the difference in the policy objectives which these reforms are trying to achieve. Broadly speaking there are two types of situation where the explosion of reforms seems to be putting a dangerous strain on the limited administrative capacity of an underdeveloped country.

The first type of situation is that which occurred in many of these countries including Burma during the period immediately following Independence. Here, reacting against the colonial economic pattern of free market, free international trade and open door policy towards private foreign investment, these countries started to embark on central planning by the government to promote economic development including the setting up of state-owned factories to promote industrialization through import-substitution policies. This type of reformist fervor not only stretches the existing limited administrative capacity almost to a breaking point but also result in progressively heavier demands on the administrative capacity, inevitably leading to the final breakdown. This characterizes the situation in Burma during the period immediately following Independence.

The present situation in Myanmar in which the explosion of reforms seems to stretching the existing administrative capacity is propelled by a very different policy objective. Here we start from an initial situation a pervasive state control over the economy and the rush to reform is aimed at loosening the state controls over the economy, progressively reducing the state sector to promote the expansion of the private sector, opening up the country to the outside world. Some of these reforms such as, privatization of State enterprise and removal of the existing state control will directly lead the saving of the administrative input. But other liberalization reforms, such as encouraging the flow of foreign investment or generally to encourage the expansion of new private enterprises would undoubtedly put a heavy strain on the country’s limited number of competent civil servants in negotiations with the interested parties and in setting up the much needed regulatory frameworks from scratch as quickly as possible to start the liberalization process going. But unlike the strain on the administrative on by the rush of reforms towards the greater planning and controls of the economy in the immediate post-independence in Burma which put a permanent and progressively heavier strain of the limited administrative capacity, the present strain on the limited administrative capabilities may be regarded as a temporary peak-period demand on the administrative capacity during the transition process from a heavily controlled economy to a free market economy. If the momentum of the reforms can be maintained, one might expect for the pressure on the administrative capacity to be eased after the transition period is successfully negotiated. This would also be helped by enlarging the administrative capacity by suitable technical assistance from other countries.

The problem of limited administrative capacity in Myanmar has a sad history which I may briefly summarize drawing on my personal experience as a part-time economic adviser to the government while teaching at Rangoon University during the immediate post-independence period. After Independence, the British civil servants had left the country but there was still a fair number of well-trained Burmese civil servants to carry on the basic administration of the country. At this juncture, the government under U Nu, as Prime Minister started to rush through the reforms to launch the economic development plan which put a heavy pressure on the existing number of capable civil servants. I remember the long meetings at odd hours, the complaints by the overworked civil servant about “the drying out of brains” and the outside observers warning about the danger of the break-neck speed of reforms to launch ambitious economic development plans. This warning turned out to be justified by subsequent events.

General Ne Win heightened the problem of the scarcity of competent civil servants by deliberately adopting a policy of recruiting “good” men, loyal to the government who have not been trained in anything instead if “capable” men selected by competitive examinations as was done during the colonial period. The problem was further aggravated by the steep decline in the education standards of country by the abolition of English as a medium of instruction in schools and later, in the Universities and the rapid overexpansion of student numbers with an inadequate supply of competent teachers both the schools and the Universities. Thus, at present, the country can no longer recruit capable persons into the civil services, even if it wishes to do so.

At this point, I should like to elaborate on an import difference between the reforms pushed through during the immediate post-Independence and the reforms now being pushed through in present day Myanmar – both done with equal haste. But the reforms in the immediate post-Independence period based on the Inward-looking approach to economic development characterized by tight controls on international trade, restrictions of the inflow of private investment and, (what is important for my present purpose) by enclosing the door on the technical assistance from other countries. During General Ne Win’s time, foreign aid agencies such as, Ford Foundation and Asia Foundation were expelled and the Fulbright and other scholarship programmes to enable hundreds of young Burmese to study abroad in America and elsewhere were stopped. Even the English language training centers, run by the British and the Americans were shut down.

In contrast the reforms which are currently pushed through in Myanmar is based on outward-looking approach the economic development, opening up the country to freer international trade and greater inflows of direct private foreign investment based on active policy of seeking suitable assistance from other countries which would enlarge the administrative capability of the country to implement the reforms which have been pushed through.

This active policy of seeking suitable technical aid from outside sources is exemplified by the recant state visit of the President U Thein Sein to meet the Prime Minister of Singapore to witness the signing of an agreement under which Singapore will provide training for reforms in legal, banking and financial sectors. This agreement also calls on Singapore to share its best practices in trade, tourism and urban planning. President Thein Sein’s four-day visit was accompanied by top-level delegation including business leaders and top ministers in charge of the economic portfolios.

As a South east Asian diplomat said: “ Myanmar needs to train accountants, bankers and other people with technical skills as well as in corporate governance. Singapore is the logical place to seek help. Singapore, a regional financial center and a favorite hub for global companies, is often seem as a economic model of success by it’s neighbor” (Bangkok Post, January 31, 2012)

This active policy of seeking outside technical assistance can also be seen in the press interview given by Myanmar’s Industry minister U Soe Thein who has led a delegation in the first participation at the World Economic Forum at Davos. U Soe Thein told the journalist that his government was working with assistance from Japan, on tax incentives for foreign investors, which would be the most attractive in the region. The package would include an eight-year tax exemption with a possible extension if the venture proved profitable to the country. He also told the journalists that the experts from the International Monetary Fund were helping the Myanmar authorities’ work on “currency exchange unification” and mechanisms for implementing fiscal and monetary policies. He said that the government planned to upgrade the Central Bank now under the Finance Ministry to give its independence. (The Nation newspaper, Bangkok, January 20. 2012)

Myanmar is in a favorable position to draw on technical assistance, not only from the International agencies and the economically advanced countries, but also learn the experiences from her fellow members of the Association of Southeast Asian Nations, ASEAN. I have already described how a top-level headed by President U Thein Sein has gone to Singapore, the most economically advanced member of ASEAN, to seek technical assistance in carrying out reforms in legal, banking and financial sectors. I think Myanmar could also benefit from “technical assistance” in a broader sense from other members of the ASEAN community such as Thailand and Indonesia drawn from own experiences during the transition period towards the building of a foundation for steady economic growth. For Instance there are useful lessons to be learnt by looking at the successful rebuilding of the Indonesian economy after the Sukarno era of “Guided Economy” contrasted Myanmar’s failure to do with her economy after Ne Win’s era of “Burmese way to Socialism”. This type of historical lessons, often neglected, may be as important as technical assistance in the narrower sense in helping to country to avoid the pitfalls during, the transition period to economic and political development.

To sum up:

The conservative opinion that Myanmar should slow down the pace of her reforms is a static textbook view of allocating the given scarce administrative resources among competing uses. I have tried to show that these assumptions have to be radically changed when applied to the preset-day situation in Myanmar.

(1)              The country’s limited administrative capacity is not immutably fixed; it can be augmented by seeking suitable technical assistance from various ranging from international agencies, from the economically advanced Western Countries and from Myanmar’s neighbors in Southeast Asia countries, which are rapidly advancing.

(2)              At present, Myanmar’s limited administrative capacity has to be used to satisfy, not competing ends based on a clearly defined priority but on promoting the complementary goals of economic development and political integration and stability.

(3)              Finally, the reforms which Myanmar is rushing through are propelled by an outward-looking policy of economic development, based on liberalizing the economy. The present strains on the limited administrative capabilities may be regarded as a heavy temporary peak-period demand on the country’s limited capacity during the transition process from a heavily controlled economy to a free market economy.

I say all this, fully aware of the fact that unlike the shortage of domestic savings which can be increased from external sources in well recognized ways, the problem of augmenting the limited administrative capacity of a country like Myanmar by technical assistance from abroad is more complex. To be effective, the assistance must be adapted to fit the local conditions and stage of economic development of the receiving country. Yet the reforms to improve the administrative capability must be put through urgently improve the “absorptive capacity” of the country for the inflows of capital from outside, in the form of foreign loans and foreign aid to the government and inflows of private foreign investment. In this connection, I am happy to quote Daw Aung San Suu Kyi (with which I entirely agree) on the importance on sound investment laws and the rule of law. She Said:

“I don’t think you can have genuine economic reforms without judicial reforms. It’s no use having good investment laws if you don’t have a good judicial system to make sure that the laws are applied. …. I think (businessman) should wait and see a little, for their own good as well as that of the country” (The Nation newspaper, Bangkok, 9th February, 2010)


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